Saturday, September 24, 2011

Something For Nothing

The last free lunch story considered the possibility of a further deep decline in gold and silver prices yesterday, on Friday, September 23, 2011. In a "truth is better than fiction" scenario, this price drop was seen in grand style, with gold price dropping by over 5 percent (Fig. 1) and silver prices falling by almost 15 percent (Fig. 2) in a single trading day. Life doesn't get much better than this as this market action continues to create a rare "something for nothing" buying opportunity.

Fig. 1: GLD daily price
[The GLD and SLV charts are used to show price movements herein, but are not suggested as vehicles to own gold or silver.]

As reported, the first Independent item at the end of March, 2010, suggested purchase of gold and silver which are the only real money on earth. GLD closed that week marked as 3/29/10 in Fig. 1 at 110.26 (indicating a gold price in the $1100/oz. range). Closing last week at 159.80, a
price increase of about 45 percent was realized over this 18 month period.

Fig. 2: SLV daily price

Meanwhile, on 3/29/10 in Fig. 2, SLV closed the week at 17.54. Even with the huge price drops last week, the close was 29.98, an over 70 percent price increase in some 18 months. Not bad.

These gold and silver price drops represent a massive transfer of wealth from weak hands to stronger hands like you and me. Who is selling? For one thing, Friday's increase in gold and silver margin requirements on the Chicago Mercantile Exchange (CME) adds to the price drop as a factor to shake out weaker hands who were over-leveraged in this volatile market. So the weak are forced to sell no doubt booking large losses and the strong are the buyers.

For those who think that these and other markets are rigged, are manipulated, by a corrupt elite, one might speculate that this ongoing precious metals "take-down" was engineered precisely to allow the powers that be to accumulate more gold and silver at bargain prices. Of course, you and I are afforded the same opportunity to get something for nothing. Indeed, one might go so far as to link precious metals price drops to the current international banking crisis where the banking cartel is rushing to get rid of fiat currencies (nothing) for gold and silver (something), which are the ultimate universal currencies by which the purchasing power of all fiat "money" is measured. In sum, this price action may indicate for a brief time just how serious the banking crisis is.

On the other hand, some of the most leveraged entities in the world are precisely the "too big to fail" banks, many of which deal in gold. Thus, some of the gold selling may be attributed to insolvent banks raising fiat cash by selling some gold inventory at a most inopportune time after prices have dropped sharply, violating the "buy low and sell high" rule. Of course, outside this short time window, this crisis would boost gold and silver prices.

Hence, we know who is selling -- the weak, the compromised. Now consider "for what?" The sellers are exchanging something, the real money of gold and silver, for nothing. Everybody knows that paper fiat money is merely a fiction, a central bank counterfeiting scheme to create tokens which folks are forced to use as a medium of exchange in commerce at gun-point, that is, by government fiat (law). Net result. The strong get the real stuff; the weak get nothing.

"All this is very unfair," one might refrain. Well, fair or not, this is how the mostly non-free markets work these days. In short, the moral question of free and fair markets is not the immediately relevant point. All one needs to know is how the markets work, which is useful knowledge whether the price action is free or manipulated. In either case, the how helps the average person increase wealth as measured by ounces of gold and silver (a point often emphasized by Stewart Thomson).

Hence, there is no room to say, "I lost money because the markets are not fair". No, if one looses money, the reason is mostly ignorance. Exactly what does it matter if the markets are rigged aside from the immorality of it? What matters is that one knows what one is doing. If the rules are unfair, so what -- as long as one knows what those unfair rules are and then can play the game with the big guys. Indeed, the real truth is that the little guy can out-do the big players who cannot alter big positions without tipping their hand (the cards they are holding, so to speak) precisely because of the big size of their positions. Hence, the little guy can potentially run circles around the big players, like mice navigating through a herd of elephants without getting stepped on.

Given the margin increase mentioned above, we might be primed to see even lower gold and silver prices on Monday next week and perhaps over the next several weeks until a firm bottom is established. However, one might note that in "after-market" trading on Friday (after 4 PM), gold, silver and their mining stocks, which I call the "money mining" stocks, were rebounding in price. So we await Monday morning to see if there is a further deep decline or not. This sort of event can be timed to some extent by the fact that there is a "drop-dead" date for margin calls, which means the day when the broker calls and says, "You have to liquidate your position in whole or part, or deposit more funds, ...TODAY." The strong hands know all about these little details and are waiting like cobra snakes ready to strike once the prey blinks, which I explained in a previous article as the cobra strategy.

What is the point of the gold and silver price peaks in Figs. 1 and 2? As described previously, those are times when parts of a core position in gold, silver and the "money mining" stocks can be sold to book profits and raise cash to be able to buy these assets when they are on sale or to meet expenses that might arise. If sufficient fiat cash is available to take advantage of price drops, then there is no reason to sell even at price peaks, if one is not actively trading. Just sit back and enjoy the show.

Holders of gold and silver need not worry at all in periods like the present when prices in fiat currency drop. So what. In the big picture, there really is no amount of fiat currency that can replace the value of gold and silver as a saving or investment vehicle. The shortage is in real money (gold and silver), not fiat currencies, which central banks are debasing by flooding the world with these tokens. Except as specifically described, why would anyone exchange something for nothing? Do you think the power banking elite needs a gift (something for nothing) from you? While they try to convince you to transfer to them your real money for eventually worthless paper that they print?

Finally, this recent price drop in gold and silver is great news for those who previously missed the boat on the precious metals uptrend. Fig. 1 shows that one can now acquire gold at prices seen some two months ago before the ascent to record highs. And it might get better than this if gold falls further in this "correction". For silver, Fig. 2 shows that Friday's prices were within the range seen some 10 months ago in December, 2010, before the big price increase earlier this year. Are you one of those who might miss the boat again?
© 2011 James J Keene